Bumps coming for IRS nominee

ON THE GLIDE PATH: It seems pretty clear — unless something strange happens or gets discovered — that the California tax lawyer Chuck Rettig will be your next IRS commissioner.

In fact, people have already been discussing when Rettig will take over the top spot, not if. And yet, Senate Democrats aren’t likely to totally let slide the opportunity to make one of President Donald Trump’s nominees squirm.

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As Pro Tax’s Aaron Lorenzo reported, that means that Rettig can expect some questions about his management experience, as he seeks to take over an agency some 70,000 strong. Democrats also want to know more about Rettig’s client roster, including whether any of them have ties to Trump and what kind of tax strategies he has employed on their behalf. "You want somebody who is apolitical, you want somebody who is no nonsense and you want somebody who is not easily steamrolled to use that position to do political bidding," Sen. Sheldon Whitehouse (D-R.I.) said.

SPEAKING OF POLITICS: One area that will be interesting to watch, assuming Rettig is confirmed, is how well he adapts to the D.C. political scene. Because while IRS commissioners are expected to be politically neutral, as Whitehouse suggested, it can certainly help if they’re politically deft.

For instance: IRS leaders five years ago were widely viewed as not quite appreciating the firestorm they created when Lois Lerner acknowledged that the agency had improperly scrutinized tea party groups seeking tax-exempt status, and for making a range of mistakes in announcing and trying to apologize for their missteps. “The IRS prides itself on being not political, and that’s a good thing. But the downside is that makes them incredibly politically naïve,” Howard Gleckman of the Urban-Brookings Tax Policy Center, told Morning Tax, specifically referencing the agency’s handling of the tea party controversy. Rettig has been involved with the IRS advisory council, but wading through the partisan battles in Washington — especially in the Trump era — is a whole other challenge. “You can’t hire a commissioner who’s a political guy,” Gleckman said. “But if you don’t have someone with some political sense, it’s a real challenge.”

AND YOU’RE ALMOST TO THE WEEKEND, where you know Washington is getting hot when noted English footballer Wayne Rooney is trying to get to town.

Let’s try this again: Today marks 69 years since the country of Thailand officially changed its name from Siam — for the second time even. (Thailand had also been the country’s name between 1939 and 1945, before becoming that name for good in 1949.)

HOW ABOUT A DEFICIT NEUTRAL 2.0? At least some House Republicans are suggesting that the second round of tax cuts that their leaders are attempting to pass in the coming months should be paired with offsets, given the questions Republicans have gotten about the fiscal responsibility of their $1.5 trillion tax cut.

That chatter comes as Republicans are discussing potential rescission packages to claw back some of the big spending bill just passed under their watch. For his part, House Ways and Means Chairman Kevin Brady (R-Texas) on Thursday declined to close the door on offsetting a package that would likely permanently extend the individual tax relief that expires in 2025. “We’re still in the development part of that, about what should be in that package. So we’ve not had that discussion yet,” Brady told reporters. Keep in mind: It’s far from guaranteed that another tax bill would get a vote in the Senate, and pushing to pay for tax cuts would run counter to historical GOP messaging. (Treasury Secretary Steven Mnuchin has said repeatedly that last year’s tax cut will pay for itself, though independent analyses suggest it will fall far short of doing so.)

Case in point: Sen. Jeff Flake (R-Ariz.), who voted for December’s tax law after initially voicing some concerns about its impact on the federal debt, said Thursday that he’d likely have issues with making the individual tax cuts permanent and not reducing deficits elsewhere, The Hill’s Naomi Jagoda reports. “I think that that is an act of bad faith, to pass something to fit it under the budget window and then as soon as you get past that political peril, then you go and have a show vote to make the tax cuts permanent when all it is is an election maneuver,” Flake said at an event run by the Peterson Foundation.

PASS THE JELLY BEANS: Trump’s inability or unwillingness to make the big sell on the GOP tax cuts is starting to get congressional Republicans even more worried about their ability to market their largest legislative achievement to voters this year. “Lacking a consistent messenger at the top, GOP lawmakers and outside groups are increasingly anxious about their ability to fill the void, particularly ahead of midterm elections that will determine whether the party can keep its narrow control of Congress,” The Washington Post’s Erica Werner reports.

And with GOP leaders pressing the rank-and-file to keep talking up the tax law, here’s the anecdote you might keep hearing about — perhaps most from Democrats. “House leaders each week award a jar of Jelly Belly candy to the member of their caucus deemed to have worked the hardest to promote the law. Winners have included Reps. Kevin Yoder (R-Kan.), for a local tax reform event at a Home Depot, and Greg Gianforte (R-Mont.) for a statewide tax tour.” (There’s also a Ronald Reagan award waiting for the GOP lawmaker who completes a to-do list including a dozen town halls on the law and seven media appearances.)

SHOW ME THE DONATIONS: Just this week, Boeing announced an extra $54 million in grants and sponsorships, and the company’s chief executive says the world’s biggest aerospace company will donate more than $200 million in this first full year after the GOP tax cut.

But as the Chronicle of Philanthropy reports, experts in that field are not just skeptical that a new influx of corporate charitable giving will last — they’re also unsure whether the donations are just a public relations maneuver and believe the new tax law might impede charitable giving in the long-term. Why? The short answer is that lower tax rates — and a corporate rate now down from 35 percent to 21 percent — decreases the after-tax benefits of a donation. Patrick Rooney at Indiana University said he didn’t expect a full 40 percent drop in corporate giving, but that even an expected 7.6 percent decline would decrease donations by some $1.4 billion.

REVVING THAT ENGINE: Top House Republicans are pouring thousands of dollars toward supporting a California ballot measure that would roll back a recent gas tax hike, Pro Transpo’s Lauren Gardner reports. House Majority Leader Kevin McCarthy has put up $300,000 for the fight in his home state, but even out-of-state leaders are helping out on a campaign they believe can help boost support for California Republicans at the polls in November. House Speaker Paul Ryan (R-Wis.) has donated $50,000 to the campaign, while House Majority Whip Steve Scalise (R-La.) has chipped in $25,000.

On a policy level, industry groups say the Republican efforts to gin up support to repeal the gas tax hike runs counter to the Trump administration’s plan to force states to use more of their own resources for infrastructure improvements.

INTERNATIONAL UPDATE

COULD BE TROUBLE! Walmart’s wading into India, paying some $16 billion to get about a three-quarters stake in the online retailer Flipkart. And as Bloomberg Tax reports, that purchase could cause the company some headaches on the tax front — including lots of scrutiny from the tax collectors in Delhi. “The deal could become entangled in the domestic laws of the countries in which Flipkart’s shareholders reside. In addition, practitioners warned, the tax authority in India may contest treaty protections shielding the deal from capital gains tax.”

DOUBLE WHAMMY: Peru is hiking excise taxes on a variety of items — sugary drinks, alcohol, cigarettes and polluting cars — in an effort to both bring in fresh revenues and tamp down public health problems in the country. “Addressing the impacts of non-communicable diseases - associated with smoking, drinking, obesity and pollution - costs Peru $24 billion, or about 11 percent of GDP, every year, the finance ministry said, citing a study from Harvard University,” Reuters reported. Sugary drinks will now face a 25 percent tax, instead of the previous 17 percent. The cigarette tax will increase by 50 percent.

STATE NEWS

CONNECTICUT’S TURN: The Nutmeg State, following the lead of neighboring New York and New Jersey, has passed its own measure to work around new federal limits on the state and local tax deduction, The Wall Street Journal reports. Both the state House and Senate unanimously passed a measure that essentially allows localities to set up charitable organizations to collect donations in lieu of taxes. Like with other states, the big question is: What will federal authorities say? “I know this is going to be challenged by the IRS,” said one GOP state senator. “But nonetheless, you have to try. You have to try to make these policies work. And I think it’s worth supporting.”

Also of note: Connecticut also passed a provision that would tax pass-through businesses at the entity level, while also offering owners a tax credit so they can avoid double taxation — basically taking advantage of the fact that the state and local deduction is fully intact for companies.

About The Author

Bernie Becker is a tax reporter for POLITICO Pro, where he is primarily responsible for writing the Morning Tax tipsheet.

He previously covered taxes for The Hill, and was an editorial assistant for The New York Times in Washington.

A native of Martinsville, Va., Becker has degrees from the College of William and Mary and the University of Maryland. He now lives in Northwest D.C. with his wife and young daughter. His hobbies include running, reading history books, eating spicy food and watching his daughter chase his cat.